It is important to remember that real estate is an investment. There are times when we may think of it as something else, but at the end of the day it is what it is: an investment. As an investor, you have more than one place to park your money. You can seek out the safe returns that bonds and other options offer. You can even pick out a few hot stocks and dabble in the stock market. There are dozens of places to invest, but none of them may be as good as real estate. Real estate offers many benefits that cannot be argued or disputed. Sure, there are certain risks, but there are risks with every kind of investment. Here are some of the most popular benefits associated with real estate investing:
1. Tax Benefits: There is a handful of tax benefits directly associated with real estate. For starters, if you own rental property you can write off the mortgage interest and depreciation. In most cases, you will never pay taxes on the cash flow you receive. Additionally, depending on the rest of your tax return, you may even get money back at the end of the year. You can also use your rental property, or properties, to claim deductions that you can use to offset income made over the course of the year. Between travel expenses, repairs, insurance and other write offs, you can use your rental property just like businesses do. Even when you decide to sell the property, there are still tax benefits you can take advantage of. With a 1031 exchange, you can less your tax liability if you purchase another property after twelve months of your transaction. The tax benefits alone make real estate a preferred investing option.
2. Forced Savings: It wasn’t that long ago that owning a property was viewed as a way of forced savings. Very few homeowners took out lines of credit or explored cash out refinance options. Much has changed over the years, but the theory is still the same. If you use real estate as a long-term investing vehicle, you will see returns in the future. The real estate market is like any other market, in that it has its share of ups and downs. By letting the market play out and holding onto real estate for years, you will set up a nice retirement portfolio that you can use come retirement.
3. Appreciation: With rental properties, not only can you reap the rewards that monthly cash flow provides, but you can also see appreciation down the road. This should not be your number one factor for investing in real estate, but it will be a nice bonus in ten or fifteen years. Even though the real estate market took a dip last decade, it has recovered and is thriving in many areas. Your returns will not be as dramatic as they were in 2006, but you will see the upside whenever you sell.
4. Cash Flow: The idea of cash flow should not be swept under the rug. Running a rental property is not easy, but where else can you have people provide cash flow to live in your property. Once you have a system down, all you will need to do is go to your mailbox every month and collect a check. Of course unexpected things will come up from time to time, but your excess cash flow will give reserves to handle them.
5. Unlimited Returns: With bonds, IRA’s and other bank investments, you know what you are going to return for the next several months. There is something secure about this, but you are also giving something up. Real estate is one of the few investments where your upside is truly unlimited. With the right property in the right location, you can make 15 to even 30 percent on your money. This won’t happen on every deal, but it is certainly possible from time to time. One thing is for certain: the positives greatly outweigh the negatives.
Some of the most successful people in the world made their income through real estate. Like any other investment, you should understand what you are getting into before you do it.